Thursday, August 2, 2012

Euro Falls on Draghi Inaction

After the bravado expressed by European Central Bank President Mario Draghi concerning doing what it takes to support the euro, the announcement today that in the short term he will do nothing caused the euro to come plunging down from its recent strength.

His problem was he raised expectations far too high in the near term, something some experts said may be the case. They were right.

All that Draghi basically said was there are plans being drawn up by the ECB that would allow it to make outright purchases of bonds. Essentially all he did was say they are preparing to take steps that may or may not be taken. And odd and weak climax to the posturing he took concerning the euro.

The one major negative factor is that Germany isn't behind the moves yet, although contrary to public assertions by Merkel, she always has caved when it comes down to more stimulus in the euro zone.

So the real question appears to be how long it will take before all the mechanisms are lined up and where and how large the stimulus will be.

The euro will remain under pressure until that is more clear, and the U.S. dollar will continue to be strong.

It's almost a surety that the Federal Reserve will take some action at its next meeting in September, as the failing presidency of Obama is at risk.

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